HMRC win 'Rangers' tax case

Newsletter issue - December 2015.

The Scottish Court of Session's recent judgment in the 'Rangers' EBT' case (Murray Group Holdings & Others [2015] CSIH 77) has attracted much attention in the press, with opinions of both support and criticism being voiced. It is not often that a Court both overturns the decisions of two Tribunals beneath it, and expressly declines to follow previous cases that have gained a certain acceptance.

This case concerned a scheme involving payments to various trusts set up in respect of executives and footballers employed by the former Rangers Football Club. In summary, the Court ruled that such payments amounted to 'a mere redirection of emoluments or earnings' and were accordingly 'subject to income tax'.

Companies within the Murray group entered into a series of transactions as part of a scheme designed to avoid the payment of income tax and NICs in respect of their employees, which resulted in assessments being made by HMRC for income tax and NICs payable under PAYE for the years 2001/2 to 2008/9. The assessments were successfully appealed before the First-tier Tribunal (FTT). HMRC's appeal to the Upper Tribunal was refused but permission to appeal to the Court of Session was subsequently granted.

The scheme involved a cash payment into an employees' remuneration trust (the Principal Trust), and the trustee of the trust then paid the same amount into a sub-trust for the benefit of the employee and his family. The trustee of the sub-trust then advanced funds on loan to the employee in question.

The FTT held that the trustee of the Principal Trust had a 'genuine discretion' as to how to apply the funds advanced to it, thus the benefit enjoyed by the employee and his family once the funds were resettled into the sub-trust resulted from the exercise of a 'discretionary power' by the trustee of the sub-trust. The FTT therefore ruled that such payments were not payments of emoluments or earnings, and were therefore not subject to income tax. HMRC, however, contended that the cash payment made by the employing company to the trustee of the Principal Trust was in consideration of services by the employee, and had therefore been 'earned' by the employee. HMRC said that the scheme amounted to 'a mere redirection of earnings which did not remove the liability of employees to income tax'. The Court concluded that the argument by HMRC was correct, and accordingly allowed the appeal on that ground.